Singapore's Fast Growth Creating Rich-Poor Divide?

Jenny Chan Vheng Yern|CNBC Asia Pacific

Thursday, 5 May 2011 | 9:03 PM ETCNBC.com

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Liyana Dhamirah, 24 says she and her husband Fazli bin Mohd Jailani, 31, and their three young children lived in a tent on the beach in Singapore for four months in 2009 when their Housing Development Board flat was repossessed as they were unable to service their mortgage loan.

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The Singapore government provides subsidized housing via the Board to its citizens. But Liyana and Fazli now share a rented flat with another family.

"It's unfair. I'm a Singaporean, yet I'm not benefiting at all from how rich Singapore has become."

Liyana and Fazli say they earn a combined S$800 ($652) a month but have been unable to make ends meet. "Sometimes I can't even afford a S$1 ($0.80) ice cream cone for my kids," says Fazli, a former mechanic apprentice, who is now unemployed and depends on the income from his wife's online handmade trinkets business.

Singapore goes to the polls on Saturday and income inequalities have become a major political issue, with the opposition highlighting the rising cost of living and the increase in foreign workers.

Those rising costs have come during an economic boom, with the country reporting a 23.5 percent increase in gross domestic product (GDP) quarter on quarter and 8.5 percent over the previous year. This was on the back of GDP growth of 15 percent in 2010.

But not everyone in this island nation of 5 million people is celebrating. Irvin Seah, an economist at Singapore bank DBS says, "Plainly, not everyone has benefited equally from the economic growth that has occurred over the past decade."

Median household incomes have grown only 21 percent in the past decade, compared to real GDP growth of 72 percent in the same period, according to government statistics.

In 2010 when GDP expanded by 14.5 percent, household incomes rose on average just 0.3 percent after adjusting for inflation.

"In any capitalist society where profit maximization is key, this gap will widen unless we get heavy government intervention."-Economist, CIMB-GK Researcg, Song Seng Wun

Take the case of Rokiah Ahmad, 46, a librarian at the Resource Center of the Urban Redevelopment Authority (URA). She says her salary was S$1,500 ($1,222) per month 10 years ago, and after a decade of small increments, it's now S$1,700 ($1,385) a month.

"It's not enough to raise three daughters and one son. We have financial difficulties."

Chow Penn Nee, an economist at United Overseas Bank says, "Wage growth is clearly not keeping up with GDP growth and the divide between the rich and the poor is getting bigger."

Asked for the government's response, Singapore's Minister for Manpower, Gan Kim Yong said income growth cannot be equated with GDP growth, "as the former is also influenced by other demand and supply factors."

The opposition Workers' Party candidate, Chen Show Mao, who was a corporate lawyer before he joined the largest opposition party in Singapore, said during the party's election rally that the benefit of Singapore's economic growth "went to corporate profits and the wages of top earners".

Government data showed that last year the bottom 10 percent of the population had a household monthly income of S$1,400 ($1,141) compared with S$23,684 ($19,308) for households in the top 10 percent.

Singapore has the highest concentration of millionaires in the world. According to the Boston Consulting Group's Global Wealth 2010 Report, 11.4 percent of Singapore’s population is millionaires.

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Prime Minster and the Secretary General of the People's Action Party, Lee Hsien Loong, leads a cheer together with the party members during a rally on May 3, 2011 in Singapore.

And it has the second highest income gap among 42 nations “with very high human development,” according to the United Nations. Singapore's Gini coefficient, a measure of income inequality where zero is complete equality and one maximum inequality, was 0.472 in 2010.

CIMB-GK Research economist Song Seng Wun believes that growth itself partly explains the widening income gap. "In any capitalist society where profit maximization is key, this gap will widen unless we get heavy government intervention."

According to Leif Eskesen, HSBC's chief economist for India & ASEAN, some inequality is integral to the effective functioning of a market economy, "but too much inequality could also hurt growth."

When contacted by CNBC, Singapore's Ministry of Finance cited the recent budget in which the government promised to raise the productivity of Singaporeans via training and other benefits.

In its budget in February, the government handed out one-time benefits valued at S$3.2 billion ($2.6 billion) targeting lower-income citizens. The ruling People's Action Party has also promised larger bursaries and grants in its manifesto.

OSK-DMG economist Enrico Tanuwidjaja says these handouts can only cushion the impact of inflation temporarily since they are one-offs. “Purchasing power actually stays the same.”

Liyana and Fazli say since 90 percent of their wages are used to pay bills, the extra money ensures that they don't fall behind in arrears too much. "It's only enough for survival."

Singapore's Ministry of Manpower says the government aims to raise incomes by 30 percent in the next 10 years by improving productivity. The ministry also says it has committed S$5.5 billion ($4.47 billion) for this purpose over the next five years.

Prime Minister Lee Hsien Loong has promised in his party's political broadcasts that the PAP, which is widely expected to win the elections, will ensure that low-wage workers are not left behind. On Tuesday, the Straits Times reported the Prime Minister apologized for not moving fast enough to address some of the shortfalls in housing and transport. "We're trying our best on your behalf. And if we didn't quite get it right, I'm sorry but we will try and do better the next time," the newspaper quoted him as saying.

71-year-old cleaner Mr Tan, who only wanted to be identified by his last name, has been earning just S$4.00 ($3.20) an hour for the past 5 years. He says he's not convinced.

"They don't care about us. The profits all go to the bosses and government ministers. And when we speak up, we're considered as complaining."

Correction: The article previously stated that Rokiah Ahmed was a librarian at the Department of Statistics, she is in fact a librarian at the Urban Redevelopment Authority.